Understanding the New Health Care Laws Part 2: The Hawaii Health Connector
May 8, 2014
The second part of this series focuses on the Hawaii Health Connector. In accordance with federal law, Hawaii has developed and implemented the Hawaii Health Connector (HHC) online insurance exchange. However, due to several factors – including the success of the Hawaii Prepaid Health Care Act (PHCA) – the State is faced with the challenge of a financially unsustainable insurance exchange system, which may threaten the viability of Hawaii's already established, trusted system.
By federal statute, all state insurance exchanges must be self-sustaining by January of 2015, the deadline for return of any unspent federal grant money. In the absence of other funding sources, the HHC is unlikely to be financially sustainable past December of 2015. The factors contributing to this expected unsustainability include:
Hawaii’s Unique Health Care Market:
SUCCESS of the PHCA: Hawaii has the second lowest rate of uninsured residents in the nation, as most businesses, including small businesses, already provide health insurance through the PHCA.
The PHCA resulted in a lower baseline of uninsured Hawaii residents prior to implementation of the HHC. Approximately 50 million (17.3%) of U.S. adults reported being without health insurance in 2013, vs. only 104,000 (7.9%) of Hawaii resident adults;
Of the 104,000 uninsured Hawaii residents, only 50,000 are Medicaid-ineligible (i.e., eligible for enrollment in the HHC).
High Operating Costs of the HHC, which include:
New IT platform which is fully ACA-compliant:
Telephone Contact Center: assistance with enrollment;
Hi’i Ola Navigators, In-Person Assisters, and Certified Application Counselors on all islands: consumer information and enrollment.
Limited Revenue Options for the HHC:
Low six-month enrollment (through April, 2014):
Expected enrollment: at least 40,000 insured through individual and Small Business Health Options Plan (SHOP) marketplaces;
8,742 individuals and families via individual marketplace;
628 employees and dependents via SHOP;
Net Medicaid enrollment: increased by 46,605 (expected increase of 48,000).
Federal grants (approximately $90 million of initial $204 million remaining);
Unspent grant funds must be refunded to the federal government in January, 2015.
Two percent fee on all plans sold through the HHC: efficacy is volume-dependent.
Federal government (Department of Health and Human Services, or HHS) permission for enrollees to remain in their “transitional plans” through 2015: decreased the potential number of Hawaii small-business employees enrolled in SHOP by 85,000.
The HHC: Impact on PHCA
The Hawaii Prepaid Health Care Act (PHCA) and the Affordable Care Act (ACA) embody similar goals; however, their scale, scope, and specific provisions differ enough to raise concerns over the compatibility of the two laws. Compatibility becomes relevant, even crucial, upon recognizing that compliance with the PHCA does not exempt Hawaii from ACA mandates, including the insurance exchange. Hawaii employers must fulfill the requirements of both the PHCA and ACA. The HHC’s anticipated unsustainability prompts the following concerns:
Failure of the HHC could result in the loss of the PHCA for Hawaii, due to the following factors:
PHCA’s Sunset Provision:
PHCA contains a provision that sunsets or repeals the law, if and when federal law “provides for voluntary prepaid health care for the people of Hawai‘i in a manner at least as favorable as the health care provided by” the PHCA, or “upon the effective date of federal legislation that provides for mandatory prepaid health care for the people of Hawai`i."
ACA-mandated state or federal insurance exchange.
While Hawaii enjoys a PHCA-based exemption from ERISA, the State has no such exemption from the ACA. In most cases, federal law supersedes state law, so without a federal exemption, failure of the HHC would force Hawaii to offer SHOP through the federal exchange, regardless of existing state laws. SHOP’s federally-backed tax incentives for small businesses would likely undermine the PHCA, eventually leading to loss of support for the state law.
The current plan of the HHC’s Board of Directors, as presented by HHC Interim Director Tom Matsuda, focuses on increasing SHOP volume (and therefore, revenue) and decreasing operational expenses.
Stabilization and growth of SHOP.
Reduction of Human Resources costs by end of FY 2016.
Transfer of Eligibility Determination for HHC Tax Subsidies from the HHC to the Hawaii Department of Human Services (DHS).
Renegotiation of Future IT Contracts: These contracts represent the largest portion of the HHC’s operating budget (per Interim Director Matsuda).
Other Possible Options:
Relinquish the HHC’s individual market to the federal exchange to decrease operating costs;
Apply for State Innovation Waiver (six months-30 days prior to start of 2017 Plan Year).